The Myth of Saving Your Way to Prosperity: Three Financial Realities for Nonprofit Executives

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An organization attempting to “save its way to prosperity” actually paves its way to financial demise. Here’s why.

It seems that many nonprofit marketing and communication departments are constantly being tasked by their executive leadership to “do more with less.” While cost-efficiencies are desirable in all types of businesses, nonprofit organizations seem to be especially prone to overlooking the cost of doing business.

My work with nonprofit clients at IMPACTS reveals that, more often than not, marketing leaders react to the “do more with less” mandate by desperately trying to “save their way to prosperity.” That is, they attempt to achieve goals not by optimizing spending to maximize the ROI (i.e. increasing their investments if the ROI warrants additional investment), but by saving as much as possible within their already woefully underfunded marketing and communication budgets.

1) Marketing is an investment, not a cost

Okay. It’s technically a cost – but when organizations think about it primarily as a cost rather than an investment, they do their organizations’ internal culture a grave disservice. Indeed, it costs money to “market” and communicate…but such is the basic cost of doing business. You need to spend money in order to get people in the door. There is a data-driven optimal investment of revenues required to optimize audience acquisition. If you don’t invest to connect with your audiences, then don’t be surprised when very few audience members choose to invest in your organization and programming. Sure, you’ll save money by not telling folks to come, but you also… won’t have anyone coming.

Compounding matters is the fact that some organizations still think social is “free” or low-cost, but social media networks are increasingly pay-to-play. Moreover, data suggest that things people say about your organization are 12.85 times more important in driving your organization’s reputation than your advertising. That fact may ostensibly sound like a great resource-hoarding angle to a CMO with a “save your way to prosperity” mindset but, instead, it should be acknowledged as a terrific investment priority to maximize support and achieve long-term financial solvency. In other words, social investment isn’t necessarily a replacement for traditional paid media – it is a cost-efficient opportunity for additional investment with additional benefits. If you don’t make the investment, then you cannot realize the return.

2. Costs to reacquire audiences are MUCH higher than costs to maintain and retain them.

Let’s say the “save your way to prosperity” angle is your thing, and you choose to save some resources from your already cash-strapped marketing department. You’re probably quite proud of yourself. And the CEO might be as well. At this time, you haven’t completed the engagement cycle (or, if you’re a cultural center, the visitation cycle) to see the impacts of your lack of investment yet. You’re looking and feeling like a penny-pinching rockstar.

Unfortunately for penny-pinching CMOs, it costs significantly more to re-acquire audience members than it does to maintain and retain them – as much as 7x more! Take a look at this often referenced analysis from Bain & Company that quantifies the value of investing in your current audiences:

Also consider that the price of advertising is increasing. The “last year +5%” budgeting rule is out of play, making it more important than ever for nonprofit executives (CMOs and CEOs alike) to make wise investments. If you make a bad investment – or no investment at all – the bill will come due. You’ll lose your hard-earned audiences and need to spend more to get them back.

While it can be tempting to put off inevitable expenses – particularly during times of financial stress – ultimately, this proves to be a shortsighted approach for an organization. Juggling expenses between operating quarters doesn’t actually change your organization’s performance during that same duration. Saving money by not fixing the roof doesn’t mean that you don’t need a new roof. Again, deferred bills always come due. These budget shell games are often designed to forfend scrutiny – but this is a short-term magical accounting game. We live in a spend a little now or a lot later world. And, failing to spend appropriately risks greater peril than merely mounting deferred expenses – your organization may be perceived as irrelevant.

You can’t save your way to prosperity. The best you can do with this mindset is spend less, lose loyal attendees and not acquire new ones, and “defer” costs that may risk lowering your organization’s reputation. That’s not “savings” and that’s certainly not “prosperity.” That’s actually spending your way to demise, or, the very thing your CEO is trying to avoid in the first place.